[Corporate Information](index=1&type=section&id=Corporate%20Information) This section provides an overview of the company's filing status, key definitions, and structural details [Filing Information](index=1&type=section&id=Filing%20Information) This section details the company's SEC filing information, identifying RGC Resources, Inc. as a non-accelerated filer and smaller reporting company, with **8,228,769 shares of common stock outstanding** as of April 30, 2021 - RGC Resources, Inc. is a **non-accelerated filer** and a **smaller reporting company**[4](index=4&type=chunk) Title of Each Class | Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | | :------------------ | :------------- | :---------------------------------------- | | Common Stock, $5 Par Value | RGCO | NASDAQ Global Market | - As of April 30, 2021, the company had **8,228,769 shares of Common Stock, $5 Par Value, outstanding**[6](index=6&type=chunk) [Glossary of Terms](index=3&type=section&id=GLOSSARY%20OF%20TERMS) This section provides definitions for key acronyms and terms used throughout the financial report, covering regulatory bodies, financial concepts, company subsidiaries, and project-specific terminology relevant to RGC Resources, Inc.'s operations - The glossary defines key terms such as AFUDC (Allowance for Funds Used During Construction), ARO (Asset Retirement Obligation), ARP (Alternative Revenue Program), and various regulatory bodies like FASB, FERC, and SCC[8](index=8&type=chunk)[9](index=9&type=chunk)[10](index=10&type=chunk) - It clarifies company entities like 'Company' (RGC Resources, Inc. or Roanoke Gas Company), 'Resources' (RGC Resources, Inc., parent company), 'Roanoke Gas' (Roanoke Gas Company, a wholly-owned subsidiary), and 'Midstream' (RGC Midstream, L.L.C., a wholly-owned subsidiary)[8](index=8&type=chunk)[10](index=10&type=chunk) - Project-specific terms like MVP (Mountain Valley Pipeline) and Southgate (Mountain Valley Pipeline, LLC's Southgate project) are also defined[9](index=9&type=chunk)[10](index=10&type=chunk) [Condensed Consolidated Financial Statements](index=7&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents the company's financial position, performance, and cash flows through condensed consolidated balance sheets, income statements, comprehensive income, changes in equity, and cash flow statements [Condensed Consolidated Balance Sheets](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) The balance sheets show an increase in total assets from **$281.7 million** in September 2020 to **$292.2 million** in March 2021, primarily driven by growth in utility property and investments in unconsolidated affiliates, with total liabilities and stockholders' equity increasing proportionally Total Assets (March 31, 2021 vs. September 30, 2020) | Metric | March 31, 2021 | September 30, 2020 | | :----- | :------------- | :----------------- | | Total Assets | $292,164,038 | $281,679,507 | | Total Liabilities and Stockholders' Equity | $292,164,038 | $281,679,507 | Key Balance Sheet Changes (March 31, 2021 vs. September 30, 2020) | Item | March 31, 2021 | September 30, 2020 | Change | | :-------------------------------- | :------------- | :----------------- | :----- | | Cash and cash equivalents | $726,549 | $291,066 | +$435,483 | | Accounts receivable | $9,828,956 | $3,404,044 | +$6,424,912 | | Utility plant, net | $203,698,440 | $198,445,093 | +$5,253,347 | | Investment in unconsolidated affiliates | $60,544,494 | $57,542,805 | +$3,001,689 | | Total current liabilities | $20,775,066 | $16,570,742 | +$4,204,324 | | Long-term debt, net | $120,770,429 | $123,819,631 | -$3,049,202 | | Total stockholders' equity | $97,574,608 | $88,887,977 | +$8,686,631 | [Condensed Consolidated Statements of Income](index=9&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) For the three months ended March 31, 2021, net income decreased by **16%** year-over-year, primarily due to a significant decline in equity in earnings from unconsolidated affiliates, despite a **26%** increase in total operating revenues Key Income Statement Data (Three Months Ended March 31) | Metric | 2021 | 2020 | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | | Total operating revenues | $28,253,662 | $22,437,731 | +26% | | Cost of gas - utility | $14,447,057 | $8,672,997 | +67% | | Operating income | $7,099,426 | $6,999,616 | +1% | | Equity in earnings (loss) of unconsolidated affiliate | $(3,797) | $1,188,593 | -100% | | Net income | $4,767,478 | $5,680,316 | -16% | | Basic EPS | $0.58 | $0.70 | -17% | | Diluted EPS | $0.58 | $0.70 | -17% | | Dividends Declared Per Common Share | $0.185 | $0.175 | +6% | Key Income Statement Data (Six Months Ended March 31) | Metric | 2021 | 2020 | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | | Total operating revenues | $47,770,679 | $42,223,184 | +13% | | Cost of gas - utility | $22,147,756 | $16,850,803 | +31% | | Operating income | $12,680,813 | $12,081,595 | +5% | | Equity in earnings (loss) of unconsolidated affiliate | $1,352,886 | $2,282,679 | -41% | | Net income | $9,490,741 | $9,687,252 | -2% | | Basic EPS | $1.16 | $1.20 | -3% | | Diluted EPS | $1.16 | $1.19 | -3% | | Dividends Declared Per Common Share | $0.370 | $0.350 | +6% | [Condensed Consolidated Statements of Comprehensive Income](index=10&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) Comprehensive income for the three months ended March 31, 2021, increased significantly to **$5.3 million** from **$4.5 million** in the prior year, primarily due to a positive shift in other comprehensive income from a loss to a gain, driven by interest rate swaps Comprehensive Income (Three Months Ended March 31) | Metric | 2021 | 2020 | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | | Net income | $4,767,478 | $5,680,316 | -16% | | Other comprehensive income (loss), net of tax | $509,158 | $(1,199,783) | +142% | | Comprehensive income | $5,276,636 | $4,480,533 | +18% | Comprehensive Income (Six Months Ended March 31) | Metric | 2021 | 2020 | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | | Net income | $9,490,741 | $9,687,252 | -2% | | Other comprehensive income (loss), net of tax | $692,747 | $(919,939) | +175% | | Comprehensive income | $10,183,488 | $8,767,313 | +16% | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=11&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20STOCKHOLDERS%27%20EQUITY) Stockholders' equity increased from **$88.9 million** at September 30, 2020, to **$97.6 million** at March 31, 2021, primarily driven by net income and the issuance of common stock, partially offset by cash dividends declared Changes in Stockholders' Equity (Six Months Ended March 31, 2021) | Item | Amount | | :-------------------------------- | :------------- | | Balance - September 30, 2020 | $88,887,977 | | Net Income | $9,490,741 | | Other comprehensive income | $692,747 | | Cash dividends declared | $(3,041,305) | | Issuance of common stock | $1,544,448 | | Balance - March 31, 2021 | $97,574,608 | - The company issued **66,592 shares of common stock** (11,979 shares in Q1 and 54,613 shares in Q2) during the six months ended March 31, 2021, contributing to the increase in common stock and capital in excess of par value[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Net cash provided by operating activities decreased by **$1.56 million** year-over-year for the six months ended March 31, 2021, primarily due to changes in accounts receivable and regulatory assets/liabilities, while investing activities used less cash and financing activities provided significantly less cash Cash Flow Summary (Six Months Ended March 31) | Cash Flow Activity | 2021 | 2020 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Net cash provided by operating activities | $9,611,402 | $11,168,131 | $(1,556,729) | | Net cash used in investing activities | $(11,691,440) | $(16,353,341) | $4,661,901 | | Net cash provided by financing activities | $2,515,521 | $7,358,090 | $(4,842,569) | | Net increase in cash and cash equivalents | $435,483 | $2,172,880 | $(1,737,397) | - Expenditures for utility property decreased from **$10.4 million** in 2020 to **$9.0 million** in 2021, and investment in unconsolidated affiliates decreased from **$5.9 million** to **$2.7 million**, leading to a reduction in cash used in investing activities[20](index=20&type=chunk) - Proceeds from issuance of unsecured notes significantly decreased from **$17.1 million** in 2020 to **$3.8 million** in 2021, contributing to the decline in cash from financing activities[20](index=20&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, revenue recognition, income taxes, regulatory matters, investments, derivatives, debt, and other key financial areas [Note 1. Basis of Presentation](index=13&type=section&id=1.%20Basis%20of%20Presentation) This note clarifies that the unaudited condensed consolidated financial statements include RGC Resources, Inc. and its wholly-owned subsidiaries, Roanoke Gas, Diversified Energy, and Midstream, highlighting the seasonal nature of the business and the ongoing evaluation of ASU 2020-04 - The financial statements are consolidated and include RGC Resources, Inc. and its wholly-owned subsidiaries: Roanoke Gas, Diversified Energy, and Midstream[22](index=22&type=chunk) - Quarterly earnings are highly seasonal, with greater earnings generally occurring in winter months, meaning current results are not indicative of the full fiscal year[23](index=23&type=chunk) - The company adopted ASU 2018-14 (Defined Benefit Plans Disclosure) effective October 1, 2020, with no material effect on financial position, results of operations, or cash flows, while evaluation of ASU 2020-04 (Reference Rate Reform) is ongoing and could significantly impact financials due to LIBOR-referenced contracts[27](index=27&type=chunk)[28](index=28&type=chunk) [Note 2. Revenue](index=15&type=section&id=2.%20Revenue) Revenue is primarily derived from gas utility sales and delivery, recognized over time based on metered usage and tariff rates, with Alternative Revenue Programs (ARPs) adjusting revenues for external factors and infrastructure investments Total Operating Revenues by Segment (Three Months Ended March 31) | Segment | 2021 | 2020 | Change (%) | | :---------------- | :----------- | :----------- | :--------- | | Gas utility | $28,221,274 | $22,275,719 | +27% | | Non utility | $32,388 | $162,012 | -80% | | Total | $28,253,662 | $22,437,731 | +26% | Total Operating Revenues by Segment (Six Months Ended March 31) | Segment | 2021 | 2020 | Change (%) | | :---------------- | :----------- | :----------- | :--------- | | Gas utility | $47,704,774 | $41,901,325 | +14% | | Non utility | $65,905 | $321,859 | -80% | | Total | $47,770,679 | $42,223,184 | +13% | - Alternative Revenue Programs (ARPs), including WNA and SAVE Plan over/under collection, are SCC-approved mechanisms that adjust revenues for weather variations and infrastructure replacement costs, and are outside the scope of ASC 606[38](index=38&type=chunk) [Note 3. Income Taxes](index=17&type=section&id=3.%20Income%20Taxes) Income tax expense for the three months ended March 31, 2021, was **$1.6 million**, down from **$1.8 million** in the prior year, with an effective tax rate of **25.2%**, while for the six months, it increased slightly to **$3.1 million** with a **24.8%** effective rate Income Tax Expense and Effective Tax Rate (Three Months Ended March 31) | Metric | 2021 | 2020 | | :-------------------------------- | :----------- | :----------- | | Income before income taxes | $6,375,413 | $7,467,808 | | Total income tax expense | $1,607,935 | $1,787,492 | | Effective tax rate | 25.2% | 23.9% | Income Tax Expense and Effective Tax Rate (Six Months Ended March 31) | Metric | 2021 | 2020 | | :-------------------------------- | :----------- | :----------- | | Income before income taxes | $12,623,680 | $12,716,331 | | Total income tax expense | $3,132,939 | $3,029,079 | | Effective tax rate | 24.8% | 23.8% | [Note 4. Rates and Regulatory Matters](index=17&type=section&id=4.%20Rates%20and%20Regulatory%20Matters) The SCC extended the moratorium on residential customer disconnections for non-payment due to COVID-19, leading to uncertainty regarding potential bad debt write-offs, while Roanoke Gas defers COVID-19 related costs and applied **$209,000** of CARES Act funds to eligible customer accounts - The SCC extended the moratorium on residential customer disconnections for non-payment and late payment fees due to COVID-19, creating uncertainty for potential bad debt write-offs[43](index=43&type=chunk) - Roanoke Gas is deferring incremental, prudently incurred COVID-19 related costs for future recovery, as allowed by an April 2020 SCC order[44](index=44&type=chunk) - In December 2020, Roanoke Gas received **$403,000** in CARES Act funds, applying **$209,000** to eligible customer accounts in February 2021 to assist with past due balances[45](index=45&type=chunk)[46](index=46&type=chunk) [Note 5. Other Investments](index=19&type=section&id=5.%20Other%20Investments) Midstream, a subsidiary, holds an approximately **1%** ownership in the Mountain Valley Pipeline (MVP) LLC, which faces delays due to regulatory challenges, leading to the suspension of AFUDC accrual since December 31, 2020, and a targeted full in-service date of summer 2022 - Midstream is an approximately **1% owner** of the LLC constructing the MVP, targeting a full in-service date for summer 2022 at a total project cost of approximately **$6.2 billion**, with Midstream's contribution expected to approach **$65 million**[47](index=47&type=chunk) - The LLC suspended accruing AFUDC on the MVP project subsequent to December 31, 2020, resulting in no AFUDC income recognition from MVP during this suspension[48](index=48&type=chunk) Investment in Unconsolidated Affiliates (MVP and Southgate) | Item | March 31, 2021 | September 30, 2020 | | :-------------------------------- | :------------- | :----------------- | | Investment in unconsolidated affiliates | $60,544,494 | $57,542,805 | | Equity in earnings (loss) of unconsolidated affiliate (3 months) | $(3,797) | $1,188,593 | | Equity in earnings (loss) of unconsolidated affiliate (6 months) | $1,352,886 | $2,282,679 | [Note 6. Derivatives and Hedging](index=20&type=section&id=6.%20Derivatives%20and%20Hedging) The Company uses interest rate swaps to manage financial market risks, converting variable-rate debt into fixed-rate debt, which qualify as cash flow hedges with fair value changes reported in other comprehensive income, and no derivative instruments for natural gas purchases were outstanding - The Company uses three interest rate swaps to convert variable-rate debt into fixed-rate debt, qualifying them as cash flow hedges[54](index=54&type=chunk) - Changes in the fair value of these swaps are reported in other comprehensive income, and no portion of the swaps were deemed ineffective[54](index=54&type=chunk) - There were no outstanding derivative instruments for the purchase of natural gas during the periods presented[55](index=55&type=chunk) [Note 7. Long-Term Debt](index=21&type=section&id=7.%20Long-Term%20Debt) Roanoke Gas renewed its unsecured line-of-credit agreement for **$40 million**, expiring March 31, 2023, with a variable interest rate, and total notes payable amounted to **$118.8 million** as of March 31, 2021, with the company in compliance with all debt covenants - Roanoke Gas renewed its unsecured line-of-credit agreement for a two-year term, expiring March 31, 2023, with a maximum borrowing limit of **$40,000,000** and a variable interest rate based on 30-day LIBOR plus 100 basis points[57](index=57&type=chunk) Long-Term Debt Summary (March 31, 2021 vs. September 30, 2020) | Debt Type | March 31, 2021 (Principal) | September 30, 2020 (Principal) | | :-------------------------------- | :------------------------- | :----------------------------- | | Total notes payable, current and non-current | $118,755,200 | $114,975,200 | | Less: current maturities of long-term debt | $(7,000,000) | $0 | | Total notes payable | $111,755,200 | $114,975,200 | | Line-of-credit | $9,281,929 | $9,143,606 | | Total long-term debt | $121,037,129 | $124,118,806 | - The Company was in compliance with all debt covenants as of March 31, 2021, and September 30, 2020, including financial covenants limiting consolidated long-term indebtedness to not more than **65% of total capitalization**[58](index=58&type=chunk) [Note 8. Other Comprehensive Income (Loss)](index=21&type=section&id=8.%20Other%20Comprehensive%20Income%20(Loss)) Other comprehensive income for the three months ended March 31, 2021, was a gain of **$509,158**, a significant improvement from a loss of **$1,199,783** in the prior year, primarily driven by unrealized gains on interest rate swaps, with a similar shift for the six-month period Other Comprehensive Income (Loss) (Three Months Ended March 31) | Item | 2021 | 2020 | | :-------------------------------- | :----------- | :----------- | | Net interest rate swaps | $494,294 | $(1,216,574) | | Defined benefit plans | $14,864 | $16,791 | | Total other comprehensive income (loss) | $509,158 | $(1,199,783) | Other Comprehensive Income (Loss) (Six Months Ended March 31) | Item | 2021 | 2020 | | :-------------------------------- | :----------- | :----------- | | Net interest rate swaps | $663,019 | $(953,521) | | Defined benefit plans | $29,728 | $33,582 | | Total other comprehensive income (loss) | $692,747 | $(919,939) | Reconciliation of Accumulated Other Comprehensive Income (Loss) | Item | September 30, 2020 | Other Comprehensive Income | March 31, 2021 | | :-------------------------------- | :----------------- | :------------------------- | :------------- | | Interest Rate Swaps | $(1,651,213) | $663,019 | $(988,194) | | Defined Benefit Plans | $(1,796,731) | $29,728 | $(1,767,003) | | Accumulated Other Comprehensive Income (Loss) | $(3,447,944) | $692,747 | $(2,755,197) | [Note 9. Commitments and Contingencies](index=23&type=section&id=9.%20Commitments%20and%20Contingencies) The COVID-19 pandemic continues to significantly impact businesses, with ongoing uncertainty regarding its duration, potential resurgence of variants, and vaccine effectiveness, making the extent of its future financial effect on the Company unpredictable - The COVID-19 pandemic continues to have a significant effect on businesses, with disruptions to normal activities and uncertainty regarding future impacts[63](index=63&type=chunk) - Factors such as the duration of the outbreak, easing of restrictions, potential for resurgence of variants, and vaccine effectiveness make the future financial impact on the Company highly uncertain and unpredictable[63](index=63&type=chunk) [Note 10. Earnings Per Share](index=23&type=section&id=10.%20Earnings%20Per%20Share) Basic and diluted earnings per common share for the three months ended March 31, 2021, were **$0.58**, down from **$0.70** in the prior year, with similar declines for the six-month period Earnings Per Share (Three Months Ended March 31) | Metric | 2021 | 2020 | | :----- | :---- | :---- | | Basic | $0.58 | $0.70 | | Diluted | $0.58 | $0.70 | Earnings Per Share (Six Months Ended March 31) | Metric | 2021 | 2020 | | :----- | :---- | :---- | | Basic | $1.16 | $1.20 | | Diluted | $1.16 | $1.19 | Weighted Average Common Shares (Six Months Ended March 31) | Metric | 2021 | 2020 | | :------------------------ | :---------- | :---------- | | Weighted average common shares | 8,192,533 | 8,101,887 | | Diluted average common shares | 8,206,154 | 8,129,218 | [Note 11. Employee Benefit Plans](index=25&type=section&id=11.%20Employee%20Benefit%20Plans) Net periodic pension cost for the three months ended March 31, 2021, decreased to **$48,954** from **$93,239** in the prior year, while net postretirement benefit cost also declined, with the Company expecting to contribute **$900,000** to both plans during the remaining fiscal year Net Periodic Pension Cost (Three Months Ended March 31) | Component | 2021 | 2020 | | :------------------------ | :--------- | :--------- | | Service cost | $183,570 | $172,902 | | Interest cost | $243,785 | $265,557 | | Expected return on plan assets | $(503,936) | $(459,156) | | Recognized loss | $125,535 | $113,936 | | Net periodic pension cost | $48,954 | $93,239 | Net Postretirement Benefit Cost (Three Months Ended March 31) | Component | 2021 | 2020 | | :------------------------ | :--------- | :--------- | | Service cost | $35,172 | $41,970 | | Interest cost | $107,623 | $132,869 | | Expected return on plan assets | $(149,122) | $(137,599) | | Recognized loss | $38,664 | $59,343 | | Net postretirement benefit cost | $32,337 | $96,583 | Expected Remaining Fiscal Year Contributions | Plan | Contributions | | :---------------- | :------------ | | Pension plan | $500,000 | | Postretirement plan | $400,000 | | Total | $900,000 | [Note 12. Fair Value Measurements](index=25&type=section&id=12.%20Fair%20Value%20Measurements) The Company measures certain financial liabilities, such as natural gas purchases and interest rate swaps, at fair value on a recurring basis, primarily using Level 2 inputs, while long-term debt's fair value is estimated using Level 3 unobservable inputs Fair Value Measurements of Liabilities (March 31, 2021) | Liability | Fair Value | Level 1 | Level 2 | Level 3 | | :---------------- | :----------- | :------ | :----------- | :------ | | Natural gas purchases | $124,948 | $0 | $124,948 | $0 | | Interest rate swaps | $1,330,722 | $0 | $1,330,722 | $0 | | Total | $1,455,670 | $0 | $1,455,670 | $0 | - The fair value of interest rate swaps is determined using counterparty proprietary models and assumptions about market conditions[73](index=73&type=chunk) Fair Value of Long-Term Debt (March 31, 2021) | Liability | Carrying Value | Fair Value (Level 3) | | :-------------------------------- | :------------- | :------------------- | | Current maturities of long-term debt | $7,000,000 | $7,000,000 | | Notes payable | $111,755,200 | $118,949,157 | | Total | $118,755,200 | $125,949,157 | [Note 13. Segment Information](index=27&type=section&id=13.%20Segment%20Information) The Company operates in three reportable segments: Gas Utility, Investment in Affiliates (MVP and Southgate projects), and Parent and Other (unregulated activities and corporate eliminations), with segment performance assessed using operating income and equity in earnings - The Company has three reportable segments: Gas Utility, Investment in Affiliates (MVP and Southgate projects), and Parent and Other (unregulated activities and corporate eliminations)[80](index=80&type=chunk)[81](index=81&type=chunk) Operating Income (Loss) by Segment (Three Months Ended March 31, 2021) | Segment | Operating Income (Loss) | | :---------------- | :---------------------- | | Gas Utility | $7,175,532 | | Investment in Affiliates | $(102,295) | | Parent and Other | $26,189 | | Consolidated Total | $7,099,426 | Total Assets by Segment (March 31, 2021) | Segment | Total Assets | | :---------------- | :----------- | | Gas Utility | $218,924,307 | | Investment in Affiliates | $60,987,637 | | Parent and Other | $12,252,094 | | Consolidated Total | $292,164,038 | [Note 14. Regulatory Assets and Liabilities](index=28&type=section&id=14.%20Regulatory%20Assets%20and%20Liabilities) Regulatory assets decreased from **$13.8 million** in September 2020 to **$13.1 million** in March 2021, primarily due to a reduction in under-recovery of gas costs and accrued pension/postretirement medical, while regulatory liabilities also saw a slight decrease - Regulatory assets and liabilities are recognized under FASB ASC No. 980, allowing deferral of costs or collections that differ from GAAP expense recognition due to regulation[83](index=83&type=chunk)[84](index=84&type=chunk) Total Regulatory Assets (March 31, 2021 vs. September 30, 2020) | Item | March 31, 2021 | September 30, 2020 | | :-------------------------------- | :------------- | :----------------- | | Total current regulatory assets | $1,723,472 | $2,503,314 | | Total non-current regulatory assets | $10,974,638 | $10,970,094 | | Total regulatory assets | $13,096,244 | $13,815,561 | Total Regulatory Liabilities (March 31, 2021 vs. September 30, 2020) | Item | March 31, 2021 | September 30, 2020 | | :-------------------------------- | :------------- | :----------------- | | Total current regulatory liabilities | $222,373 | $890,313 | | Total non-current regulatory liabilities | $31,081,254 | $30,588,107 | | Total regulatory liabilities | $31,303,627 | $31,478,420 | [Note 15. Subsequent Events](index=31&type=section&id=15.%20Subsequent%20Events) The Company has evaluated subsequent events through the financial statements' issuance date and found no material items requiring disclosure that were not already included - No material subsequent events were identified that would impact the condensed consolidated financial statements[86](index=86&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=ITEM%202%20%E2%80%93%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial performance, liquidity, and capital resources, including forward-looking statements, the impact of COVID-19, and regulatory developments [Forward-Looking Statements](index=32&type=section&id=Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements based on management's current expectations, which are subject to various risks and uncertainties, and cautions that quarterly earnings are not indicative of full fiscal year results due to seasonality - The report contains forward-looking statements based on management's current expectations, subject to risks and uncertainties detailed in Item 1A "Risk Factors" of the 2020 Annual Report on Form 10-K[88](index=88&type=chunk) - The Company assumes no duty to update these statements unless required by applicable laws and regulations[89](index=89&type=chunk) - Three-month and six-month earnings are not reflective of the full fiscal year due to the seasonal nature of the natural gas business, which results in higher billings during winter months[90](index=90&type=chunk) [COVID-19 Impact](index=32&type=section&id=COVID-19) The COVID-19 pandemic continues to impact the economy and the Company's operations, leading to a service moratorium on residential disconnections and a build-up of delinquent account balances, with the ultimate impact on bad debt expense remaining uncertain - COVID-19 continues to impact local, state, national, and global economies, disrupting normal activities in the Company's service territory[91](index=91&type=chunk) - Commercial and industrial gas volumes, adjusted for weather, declined by **3%** for the quarter and **2%** for the six-month period year-over-year, primarily due to a single industrial customer switching fuel sources[93](index=93&type=chunk) - The service moratorium on disconnections for non-payment is expected to continue, leading to accumulating delinquent balances, with over **$200,000** in CARES Act funds applied to delinquent accounts in February 2021, but total bad debt expense remains unpredictable[94](index=94&type=chunk) [Overview of Business and Regulatory Environment](index=34&type=section&id=Overview%20of%20Business%20and%20Regulatory%20Environment) RGC Resources, Inc. primarily operates as a regulated natural gas utility through Roanoke Gas, serving approximately **63,000 customers**, with operations regulated by the SCC and FERC, utilizing mechanisms like SAVE, WNA, ICC, and PGA to mitigate earnings volatility and recover infrastructure investments - Resources is primarily an energy services company engaged in the regulated sale and distribution of natural gas to approximately **63,000 residential, commercial, and industrial customers** through its Roanoke Gas subsidiary[97](index=97&type=chunk) - The Company's utility operations are regulated by the Virginia State Corporation Commission (SCC) and the Federal Energy Regulatory Commission (FERC), which oversee rates, safety standards, and gas transportation prices[99](index=99&type=chunk) - Approved rate mechanisms such as SAVE (Steps to Advance Virginia's Energy), WNA (Weather Normalization Adjustment), ICC (Inventory Carrying Cost), and PGA (Purchased Gas Adjustment) are used to stabilize earnings, adjust for gas price volatility, and recover infrastructure investments[102](index=102&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) The Company's results of operations are primarily driven by its utility segment, with net income decreasing for both the three and six months ended March 31, 2021, largely due to the cessation of AFUDC earnings from the MVP investment, despite increases in gas utility revenues and gross utility margin - Net income decreased by **$912,838 (16%)** for the three months ended March 31, 2021, primarily due to the cessation of AFUDC earnings on the investment in MVP[114](index=114&type=chunk) - Net income decreased by **$196,511 (2%)** for the six months ended March 31, 2021, mainly due to reductions in MVP earnings related to AFUDC, partially offset by higher natural gas margins and lower operation and maintenance expenses[129](index=129&type=chunk) - Gross utility margin, a non-GAAP measure, is considered a more useful and relevant measure for analyzing financial performance[113](index=113&type=chunk) [Three Months Ended March 31, 2021](index=36&type=section&id=Three%20Months%20Ended%20March%2031,%202021) This subsection details the financial performance for the three-month period ending March 31, 2021, highlighting changes in operating revenues and gross utility margin Operating Revenues (Three Months Ended March 31) | Metric | 2021 | 2020 | Increase / (Decrease) | Percentage | | :------------------------ | :----------- | :----------- | :-------------------- | :--------- | | Gas utility | $28,221,274 | $22,275,719 | $5,945,555 | 27% | | Non utility | $32,388 | $162,012 | $(129,624) | (80)% | | Total Operating Revenues | $28,253,662 | $22,437,731 | $5,815,931 | 26% | - Total operating revenues increased by **26%** due to significantly higher natural gas prices and pipeline/storage fees, higher natural gas deliveries (**20% increase in HDD**), and increased SAVE revenues, partially offset by reduced WNA revenues and a **12% decline** in transportation and interruptible volumes[116](index=116&type=chunk) Gross Utility Margin (Three Months Ended March 31) | Metric | 2021 | 2020 | Increase | Percentage | | :---------------- | :----------- | :----------- | :--------- | :--------- | | Gas Utility Revenue | $28,221,274 | $22,275,719 | $5,945,555 | 27% | | Cost of Gas - Utility | $14,447,057 | $8,672,997 | $5,774,060 | 67% | | Gross Utility Margin | $13,774,217 | $13,602,722 | $171,495 | 1% | [Six Months Ended March 31, 2021](index=40&type=section&id=Six%20Months%20Ended%20March%2031,%202021) This subsection details the financial performance for the six-month period ending March 31, 2021, highlighting changes in operating revenues and gross utility margin Operating Revenues (Six Months Ended March 31) | Metric | 2021 | 2020 | Increase / (Decrease) | Percentage | | :------------------------ | :----------- | :----------- | :-------------------- | :--------- | | Gas utility | $47,704,774 | $41,901,325 | $5,803,449 | 14% | | Non utility | $65,905 | $321,859 | $(255,954) | (80)% | | Total Operating Revenues | $47,770,679 | $42,223,184 | $5,547,495 | 13% | - Total operating revenues increased by **13%** due to higher natural gas prices, pipeline/storage fees, increased delivered volumes (**7% increase in residential/commercial volumes** due to **5% more HDDs**), and higher SAVE revenues, partially offset by reduced WNA revenues and a **9% decrease** in transportation/interruptible volumes[130](index=130&type=chunk) Gross Utility Margin (Six Months Ended March 31) | Metric | 2021 | 2020 | Increase | Percentage | | :---------------- | :----------- | :----------- | :--------- | :--------- | | Gas Utility Revenue | $47,704,774 | $41,901,325 | $5,803,449 | 14% | | Cost of Gas - Utility | $22,147,756 | $16,850,803 | $5,296,953 | 31% | | Gross Utility Margin | $25,557,018 | $25,050,522 | $506,496 | 2% | [Critical Accounting Policies and Estimates](index=42&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The Company's financial statements are prepared in accordance with GAAP, relying on estimates and assumptions that may differ from actual results, with no changes to critical accounting policies since the 2020 Annual Report on Form 10-K - The consolidated financial statements are prepared in accordance with GAAP, requiring management to make estimates and assumptions that affect reported amounts[142](index=142&type=chunk) - Actual results may differ significantly from these estimates and assumptions[142](index=142&type=chunk) - There have been no changes to the critical accounting policies as reflected in the Company's Annual Report on Form 10-K for the year ended September 30, 2020[143](index=143&type=chunk) [Asset Management](index=42&type=section&id=Asset%20Management) Roanoke Gas utilizes a third-party asset manager to oversee its pipeline transportation, storage rights, and gas supply, with the asset manager paying a monthly utilization fee, a portion of which is retained by the Company and the balance passed through to customers - Roanoke Gas uses a third-party asset manager for pipeline transportation, storage rights, and gas supply inventories and deliveries[144](index=144&type=chunk) - The asset manager pays a monthly utilization fee, with a portion retained by the Company and the remainder passed through to customers as reduced gas costs[144](index=144&type=chunk) - The current asset manager contract has been renewed through March 31, 2022[144](index=144&type=chunk) [Equity Investment in Mountain Valley Pipeline](index=43&type=section&id=Equity%20Investment%20in%20Mountain%20Valley%20Pipeline) The MVP project is approximately **92% complete** but faces ongoing legal and regulatory challenges, leading the LLC to suspend AFUDC accrual since December 31, 2020, and now targets a full in-service date of summer 2022 at an estimated total cost of **$6.2 billion** - The MVP project is approximately **92% complete** but faces legal and regulatory challenges, particularly regarding stream and wetland crossings, leading to limited construction activity[145](index=145&type=chunk)[146](index=146&type=chunk) - The LLC suspended the accrual of AFUDC on the MVP project subsequent to December 31, 2020, and Roanoke Gas also suspended AFUDC on its interconnecting gate stations[149](index=149&type=chunk) - The MVP project's full in-service date is targeted for summer 2022 at an approximate total cost of **$6.2 billion**, while the Southgate project aims for construction in 2022 and in-service in spring 2023, but also faces permit approval timing issues[147](index=147&type=chunk)[152](index=152&type=chunk) [Regulatory Developments](index=45&type=section&id=Regulatory%20Developments) The SCC's final rate case order in January 2020 awarded Roanoke Gas a **$7.25 million** non-gas rate increase and a **9.44%** return on equity, requiring a **$3.8 million** customer refund, while the COVID-19 service moratorium continues to impact residential customers - The SCC's January 2020 final rate case order granted Roanoke Gas a **$7.25 million** annualized non-gas rate increase and a **9.44% return on equity**, resulting in a **$3.8 million customer refund**[154](index=154&type=chunk) - The COVID-19 service moratorium on residential disconnections continues, leading to deferred COVID-19 related costs and the application of **$209,000** in CARES Act funds to eligible customer accounts[156](index=156&type=chunk)[157](index=157&type=chunk) - The SAVE Plan and Rider were updated in September 2020, increasing annual revenues for infrastructure replacement projects to approximately **$2.3 million** from **$1.2 million**[158](index=158&type=chunk) [Capital Resources and Liquidity](index=45&type=section&id=Capital%20Resources%20and%20Liquidity) The Company's capital needs are met by operating cash flows, credit agreements, and equity programs, with net cash provided by operating activities decreasing by **$1.56 million** year-over-year, and Roanoke Gas renewing its **$40 million** line-of-credit, while Midstream may require additional financing for MVP - Primary capital needs include funding utility plant capital projects, investment in MVP, seasonal natural gas inventories, and accounts receivable, met by operating cash flows, credit agreements, and equity programs[159](index=159&type=chunk) - Net cash provided by operating activities decreased by **$1,556,729** for the six months ended March 31, 2021, primarily due to changes in accounts receivable and regulatory assets/liabilities, net of a prior year rate refund[162](index=162&type=chunk)[163](index=163&type=chunk) - Roanoke Gas renewed its **$40 million** unsecured line-of-credit through March 31, 2023, and Midstream has **$41 million** in borrowing capacity, with **$29.3 million** utilized, but ongoing MVP delays may necessitate additional financing, with Resources' long-term capitalization ratio at **43% equity** and **57% debt** as of March 31, 2021[167](index=167&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=ITEM%203%20%E2%80%93%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section states that there are no applicable quantitative and qualitative disclosures about market risk for the reporting period - This item is not applicable for the current reporting period[172](index=172&type=chunk) [Controls and Procedures](index=49&type=section&id=ITEM%204%20%E2%80%93%20CONTROLS%20AND%20PROCEDURES) The Company's disclosure controls and procedures were deemed effective at a reasonable assurance level as of March 31, 2021, with management routinely reviewing and enhancing internal controls, and no material changes reported during the fiscal quarter - The Company's disclosure controls and procedures were evaluated and concluded to be effective at the reasonable assurance level as of March 31, 2021[174](index=174&type=chunk) - Management routinely reviews and makes changes to enhance the effectiveness of internal controls[175](index=175&type=chunk) - No control changes materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the fiscal quarter ended March 31, 2021[175](index=175&type=chunk) [Part II – Other Information](index=50&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) This section covers various other required disclosures, including legal proceedings, risk factors, sales of equity securities, defaults, mine safety, and a list of exhibits [Legal Proceedings](index=50&type=section&id=ITEM%201%20%E2%80%93%20LEGAL%20PROCEEDINGS) There are no material legal proceedings to report - No material legal proceedings are reported[178](index=178&type=chunk) [Risk Factors](index=50&type=section&id=ITEM%201A%20%E2%80%93%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended September 30, 2020 - No material changes from the risk factors previously disclosed in Resources' Annual Report on Form 10-K for the year ended September 30, 2020[179](index=179&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=ITEM%202%20%E2%80%93%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) There were no unregistered sales of equity securities or use of proceeds to report - None to report[180](index=180&type=chunk) [Defaults Upon Senior Securities](index=50&type=section&id=ITEM%203%20%E2%80%93%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) There were no defaults upon senior securities to report - None to report[181](index=181&type=chunk) [Mine Safety Disclosures](index=50&type=section&id=ITEM%204%20%E2%80%93%20MINE%20SAFETY%20DISCLOSURES) Mine safety disclosures are not applicable to the Company's operations - Not applicable[182](index=182&type=chunk) [Other Information](index=50&type=section&id=ITEM%205%20%E2%80%93%20OTHER%20INFORMATION) There is no other information to report under this item - None to report[183](index=183&type=chunk) [Exhibits](index=50&type=section&id=ITEM%206%20%E2%80%93%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including various debt agreements, certifications from executive officers, and XBRL-related documents - Exhibits include modifications to promissory notes and revolving line of credit agreements with Wells Fargo Bank, N.A.[184](index=184&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer (Rule 13a–14(a)/15d–14(a) and Section 1350) are furnished[184](index=184&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are included[184](index=184&type=chunk) [Signatures](index=51&type=section&id=SIGNATURES) This section contains the required signatures, confirming the due authorization and filing of the report on behalf of RGC Resources, Inc. by its Vice President, Interim Chief Financial Officer, Corporate Secretary, and Treasurer - The report is signed by Lawrence T. Oliver, Vice President, Interim Chief Financial Officer, Corporate Secretary, and Treasurer, on behalf of RGC Resources, Inc. on May 13, 2021[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk)

RGC Resources, Inc. (NASDAQ:RGCO) Q1 2021 Earnings Conference Call February 12, 2021 9:00 AM ET Company Participants Paul Nester - President and CEO Randy Burton - Chief Financial Officer Conference Call Participants Michael Gaugler - Janney Montgomery Scott Paul Nester Good morning. I'm Paul Nester, President and CEO of RGC Resources, Inc. With me today are Randy Burton, our Chief Financial Officer; and David Garcia, our Director of Financial Reporting and Analysis. Welcome, and thank you for joining us a ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) (540) 777-4427 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Transition Period From to Commission File Number 000-26591 RGC Resources, Inc. (Exact name of Registrant as Specified in its Charter) (State or Other Jurisdiction of Incor ...

Financial Data and Key Metrics Changes - The company reported an EPS increase of approximately 20% year-over-year to $1.30 per diluted share, driven by favorable utility margins and earnings from the MVP investment [7] - Operating income for fiscal 2020 increased by 8% to $12.5 million, primarily due to higher non-gas rates and increased transportation and interruptible volumes [9] - Net income for fiscal 2020 rose by $1.9 million or 21% compared to fiscal 2019 [9] Business Line Data and Key Metrics Changes - Total volumes delivered increased by 5% in fiscal 2020 despite a 5% overall warmer weather, with commercial and industrial volumes offsetting decreases in farm classes [5] - The non-cash equity earnings from RGC Midstream's investment in the Mountain Valley pipeline increased by 35% to approximately $1.3 million [8] Market Data and Key Metrics Changes - Customer growth continued with the addition of over 550 new customers per year since 2017, maintaining a growth rate of approximately 2% [4] - The pandemic has led to increased aging of accounts receivable, which is expected to continue through the winter heating season [13] Company Strategy and Development Direction - The company plans to invest $21.1 million in fiscal 2021 to renew, strengthen, and expand the Roanoke Gas distribution system, with a focus on SAVE Rider projects [12] - The MVP project has resumed limited construction and is targeting an in-service date during the second half of calendar 2021 [12] Management's Comments on Operating Environment and Future Outlook - Management emphasized the importance of customer and employee safety during the ongoing pandemic, with protocols in place to address operational challenges [13] - The company is actively analyzing delivered volumes at the individual customer level to adapt to changing conditions [13] Other Important Information - Capital spending for fiscal 2020 was $22.9 million, which included investments in system modernization and growth projects [6] Q&A Session Summary Question: Any dates to watch for MVP court activity? - Management indicated there are no specific dates at this time but noted recent activity in the Fourth Circuit Court of Appeals regarding permits [18] Question: Update on ConEd's ownership stake divestment? - Management confirmed no recent communication with ConEd regarding their ownership stake, which is expected to dilute over time as they limit contributions [19]

[Glossary of Terms](index=4&type=section&id=Glossary) This section defines key terms and acronyms used throughout the report, including financial, regulatory, and company-specific terminology - The glossary defines key terms and acronyms used throughout the report, such as **AFUDC** (Allowance for Funds Used During Construction), **ARO** (Asset Retirement Obligation), **ARP** (Alternative Revenue Program), **COVID-19**, **DTH** (Decatherm), **EPS** (Earnings Per Share), **FERC** (Federal Energy Regulatory Commission), **GAAP** (Accounting Principles Generally Accepted in the United States), **HDD** (Heating Degree Day), **LNG** (Liquefied Natural Gas), **MVP** (Mountain Valley Pipeline), **PGA** (Purchased Gas Adjustment), **SCC** (Virginia State Corporation Commission), **SAVE** (Steps to Advance Virginia's Energy), and **WNA** (Weather Normalization Adjustment), along with company-specific entities like **Roanoke Gas** and **Midstream**[9](index=9&type=chunk)[10](index=10&type=chunk) [Cautionary Note Regarding Forward Looking Statements](index=6&type=section&id=Cautionary%20Note%20Regarding%20Forward%20Looking%20Statements) This section warns that the report contains forward-looking statements subject to risks and uncertainties, with no obligation to update them - This section warns readers that the report contains **forward-looking statements** based on management's current expectations, which are subject to various **risks and uncertainties** detailed in Item 1A 'Risk Factors'[11](index=11&type=chunk)[12](index=12&type=chunk) - The company explicitly states it assumes **no duty to update** these statements unless required by applicable laws and regulations[11](index=11&type=chunk)[12](index=12&type=chunk) [PART I](index=7&type=section&id=PART%20I) [Item 1. Business](index=7&type=section&id=Item%201.%20Business) RGC Resources, Inc. is a holding company primarily engaged in natural gas distribution through Roanoke Gas, with an investment in the Mountain Valley Pipeline project - RGC Resources, Inc. is a holding company composed of **Roanoke Gas**, Diversified Energy (inactive), and **Midstream**, with **Roanoke Gas** being the primary operating subsidiary, distributing and selling **natural gas**[15](index=15&type=chunk)[16](index=16&type=chunk)[18](index=18&type=chunk) - Roanoke Gas's regulated natural gas distribution business accounted for approximately **98% of Resources' total revenues** for **fiscal years 2020 and 2019**[20](index=20&type=chunk) Customer Breakdown (Fiscal Year Ended September 30, 2020): | Category | Customers (%) | Volume (%) | Revenue (%) | Margin (%) | | :------- | :------------ | :--------- | :---------- | :--------- | | Residential | 91.3 % | 35 % | 60 % | 63 % | | Commercial | 8.6 % | 27 % | 30 % | 23 % | | Industrial | 0.1 % | 38 % | 8 % | 12 % | | Other Utility | 0.0 % | 0 % | 1 % | 1 % | | Other Non-Utility | 0.0 % | 0 % | 1 % | 1 % | - Total natural gas deliveries were approximately **10.4 million DTH in fiscal 2020** and **9.9 million DTH in fiscal 2019**[23](index=23&type=chunk) - Roanoke Gas operates in a **regulated, monopolistic environment** with **exclusive franchises** and **Certificates of Public Convenience and Necessity (CPCNs)** in its service areas, subject to **federal, state, and local regulations**[28](index=28&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - As of September 30, 2020, Resources had **101 full-time employees**, with **18% belonging to a union** under a collective bargaining agreement[35](index=35&type=chunk) [Item 1A. Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) This section details operational, regulatory, financial, and general risks that could adversely affect the company's business and financial performance - Operational risks include reliance on **two interstate pipelines** for **100% of natural gas supply**, inherent risks in operating a natural gas distribution system and **LNG storage facility**, **supply disruptions** due to disasters, security incidents or **cyber-attacks**, volatility in **natural gas prices**, inability to attract and retain **skilled employees**, geographic concentration of business activities, and potential delays or cost overruns in **pipeline expansion projects**[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) - Regulatory risks encompass environmental laws related to **global warming and climate change**, increased compliance and pipeline safety requirements and **fines**, adverse regulatory actions or failure to obtain timely rate relief from the **SCC**, and changes in **tax laws**[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) - Financial risks include **significant delays, cost overruns, and regulatory obstacles** affecting the investment in **Mountain Valley Pipeline, LLC**, the potential negative impact of a **pandemic outbreak (like COVID-19)** on financial position and cash flows, challenges in **accessing capital** to maintain liquidity, failure to comply with **debt covenant requirements**, and increased costs related to **post-retirement benefits**[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk)[65](index=65&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - General risks include a **downturn in the economy** or a prolonged period of slow economic recovery, which could lead to **reduced sales volumes** and **increased bad debt expense**, and the possibility of **insufficient insurance coverage** for various exposures and risks[75](index=75&type=chunk)[76](index=76&type=chunk) [Item 1B. Unresolved Staff Comments](index=17&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments [Item 2. Properties](index=17&type=section&id=Item%202.%20Properties) This section details the company's utility properties, including pipelines, metering stations, an LNG storage facility, and offices - The company has approximately **1,144 miles of transmission and distribution pipeline**, representing **88% of its total utility plant investment**[78](index=78&type=chunk) - Roanoke Gas owns and operates **nine metering stations** for gas delivery and a liquefied natural gas (**LNG**) storage facility with a capacity of up to **200,000 DTH**[79](index=79&type=chunk)[80](index=80&type=chunk) [Item 3. Legal Proceedings](index=18&type=section&id=Item%203.%20Legal%20Proceedings) The company is not a party to any pending legal proceedings [Item 4. Mine Safety Disclosures](index=18&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company [PART II](index=19&type=section&id=PART%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=19&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) RGC Resources, Inc. common stock is listed on NASDAQ, with dividends at Board discretion and equity compensation plans in place - RGC Resources' common stock is listed on the **NASDAQ Global Market** under the trading symbol **RGCO**[85](index=85&type=chunk) Cash Dividends Declared Per Share ($): | Year Ended September 30, | Q1 ($) | Q2 ($) | Q3 ($) | Q4 ($) | | :----------------------- | :----- | :----- | :----- | :----- | | 2020 | $0.1750 | $0.1750 | $0.1750 | $0.1750 | | 2019 | $0.1650 | $0.1650 | $0.1650 | $0.1650 | Equity Compensation Plans (as of September 30, 2020): | Metric | Value (shares/$) | | :---------------------------------------------------------------- | :--------------- | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | 51,500 | | Weighted-average exercise price of outstanding options, warrants and rights | $18.34 | | Number of securities remaining available for future issuance | 493,532 | [Item 6. Selected Financial Data](index=19&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not applicable to the company [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial performance, condition, and outlook, covering COVID-19 impacts, regulatory actions, and strategic investments [COVID-19 Impact & Cyber Risk](index=20&type=section&id=7.1.%20COVID-19%20Impact%20%26%20Cyber%20Risk) The COVID-19 pandemic impacted natural gas consumption and bad debt, while the company maintains focus on cyber security - The **COVID-19 pandemic** led to a **decline in natural gas consumption** in most **commercial categories**, though certain **industrial customers increased usage**, offsetting commercial declines, while **residential volumes remained consistent**[90](index=90&type=chunk) - The SCC issued orders **prohibiting utility service disconnections** for non-payment and **late payment fees** from **March to October 5, 2020**, which was extended by HB5005 for residential customers, leading to an **increased provision for bad debts**[91](index=91&type=chunk) - The company remains focused on safeguarding its information technology systems from **cyber-attacks** and maintains **cyber insurance** to mitigate financial costs from such incidents[94](index=94&type=chunk) [Business Overview and Regulatory Mechanisms](index=22&type=section&id=7.2.%20Business%20Overview%20and%20Regulatory%20Mechanisms) Roanoke Gas operations are regulated by the SCC, DOT, and FERC, utilizing mechanisms like SAVE, WNA, ICC, and PGA to manage earnings volatility - Roanoke Gas's utility operations are regulated by the **SCC** (rates, safety, service extension, depreciation), **Department of Transportation** (pipeline safety), and **FERC** (natural gas transportation/storage prices)[98](index=98&type=chunk) - In January 2020, the SCC granted Roanoke Gas an **annualized increase in non-gas base rates of $7.25 million** and an authorized rate of return on equity of **9.44%**, resulting in a **$3.8 million customer refund** in March 2020 and a **$317,000 write-down of ESAC assets**[100](index=100&type=chunk) - The company utilizes several regulatory mechanisms to mitigate earnings volatility: the **SAVE Rider**, **Weather Normalization Adjustment (WNA)**, **Inventory Carrying Cost (ICC)**, and **Purchased Gas Adjustment (PGA)**[102](index=102&type=chunk) - **SAVE Plan revenues declined to $1,272,000 in fiscal 2020 from $1,599,000 in fiscal 2019** due to the SAVE Rider reset, incorporating prior investments into new non-gas base rates[104](index=104&type=chunk) - The **WNA generated approximately $1,193,000 and $453,000 in additional revenue** for **fiscal years 2020 and 2019**, respectively, due to **warmer than normal weather**[105](index=105&type=chunk) - **ICC revenues declined by approximately $74,000** from fiscal 2019, driven by a **12% reduction in the average cost of gas** in storage and a **6% reduction in the ICC factor**[107](index=107&type=chunk) - Roanoke Gas **accelerated the recovery of $525,000 in ESAC assets in fiscal 2020** because its earnings **exceeded the mid-point of its authorized return on equity range**, as determined by its annual earnings test[109](index=109&type=chunk) [Results of Operations (Fiscal Year 2020 Compared with Fiscal Year 2019)](index=24&type=section&id=7.3.%20Results%20of%20Operations%20%28Fiscal%20Year%202020%20Compared%20with%20Fiscal%20Year%202019%29) This section compares the company's operating revenues, volumes, gross margin, expenses, and net income for fiscal years 2020 and 2019 Total Operating Revenues (Year Ended September 30): | Category | 2020 ($) | 2019 ($) | Decrease ($) | Percentage (%) | | :-------------------- | :----------- | :----------- | :----------- | :--------- | | Gas Utilities | $62,408,925 | $67,306,260 | $(4,897,335) | (7)% | | Other | $666,466 | $720,265 | $(53,799) | (7)% | | **Total Operating Revenues** | **$63,075,391** | **$68,026,525** | **$(4,951,134)** | **(7)%** | Delivered Volumes (Year Ended September 30): | Category | 2020 (DTH) | 2019 (DTH) | Increase / (Decrease) (DTH) | Percentage (%) | | :-------------------------- | :----------- | :----------- | :-------------------- | :--------- | | Residential and Commercial | 6,419,031 | 6,901,181 | (482,150) | (7)% | | Transportation and Interruptible | 3,938,143 | 2,975,312 | 962,831 | 32 % | | **Total Delivered Volumes** | **10,357,174** | **9,876,493** | **480,681** | **5 %** | - **Heating degree days declined by 4% in fiscal 2020 compared to fiscal 2019**[113](index=113&type=chunk) Gross Utility Margin (Year Ended September 30): | Metric | 2020 ($) | 2019 ($) | Increase / (Decrease) ($) | Percentage (%) | | :---------------- | :----------- | :----------- | :-------------------- | :--------- | | Utility revenues | $62,408,925 | $67,306,260 | $(4,897,335) | (7)% | | Cost of gas | $23,949,481 | $32,401,123 | $(8,451,642) | (26)% | | **Gross Utility Margin** | **$38,459,444** | **$34,905,137** | **$3,554,307** | **10 %** | - Operations and maintenance expense increased by **$2,091,210, or 15%**, primarily due to **accelerated recovery of ESAC regulatory assets**, a **$336,000 increase in bad debt expense (related to COVID-19)**, higher compensation costs, and increased professional services[116](index=116&type=chunk) - Equity in earnings of the unconsolidated MVP investment increased by **$1,794,526** due to **Allowance for Funds Used During Construction (AFUDC)** related to increased project investment[118](index=118&type=chunk) Net Income and Earnings Per Share (Year Ended September 30): | Metric | 2020 ($) | 2019 ($) | Change ($) | | :-------------------- | :----------- | :----------- | :----------- | | Net Income | $10,564,534 | $8,698,412 | $1,866,122 | | Basic EPS | $1.30 | $1.08 | $0.22 | | Diluted EPS | $1.30 | $1.08 | $0.22 | | Dividends Declared per Share | $0.70 | $0.66 | $0.04 | [Capital Resources and Liquidity](index=26&type=section&id=7.4.%20Capital%20Resources%20and%20Liquidity) This section reviews the company's cash flows, capitalization, and financing activities, including credit facilities and stock offerings Cash Flow Summary (Years Ended September 30): | Metric | 2020 ($) | 2019 ($) | | :------------------------------------ | :----------- | :----------- | | Net cash provided by operating activities | $12,823,903 | $14,697,704 | | Net cash used in investing activities | $(30,721,011) | $(42,830,005) | | Net cash provided by financing activities | $16,556,826 | $29,516,238 | | **Increase (decrease) in cash and cash equivalents** | **$(1,340,282)** | **$1,383,937** | - Cash flow from operating activities decreased by nearly **$1.9 million in fiscal 2020**, primarily due to changes in regulatory assets and liabilities (rate refunds and gas cost under-recovery), partially offset by higher net income and changes in accounts payable[129](index=129&type=chunk)[130](index=130&type=chunk) - Investing activities included **$22.9 million for Roanoke Gas's utility plant expenditures** and **$7.9 million for Midstream's investment in the MVP in fiscal 2020**[132](index=132&type=chunk)[134](index=134&type=chunk) - As of September 30, 2020, the company's **consolidated capitalization was 41.7% equity and 58.3% long-term debt**, compared to **44.5% equity and 55.5% long-term debt in 2019**[135](index=135&type=chunk) - Roanoke Gas **renewed its unsecured line-of-credit** for a **two-year term expiring March 31, 2022**, with a **maximum borrowing limit of $28 million**[136](index=136&type=chunk) - Midstream **increased its credit facility to $41 million** and **extended its maturity date to December 29, 2022**, to provide **additional financing for its MVP investment**[137](index=137&type=chunk) - Roanoke Gas issued **$10 million in unsecured notes** with a **10-year term** at a **fixed interest rate of 3.60%** and amended its private shelf facility to pre-authorize an additional **$40 million in notes**, plus a second private shelf facility for **$70 million**[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) - Resources shareholders approved an amendment to increase the total number of **authorized common shares from 10 million to 20 million**, and the company filed a prospectus for a **$40 million common stock offering**, including a **$15 million 'at the market' approach**[141](index=141&type=chunk)[142](index=142&type=chunk) [Off-Balance Sheet Arrangements](index=29&type=section&id=7.5.%20Off-Balance%20Sheet%20Arrangements) The company reports no off-balance sheet arrangements as defined by Regulation S-K - The Company has **no off-balance sheet arrangements** as defined in Regulation S-K, Item 303(a)(4)(ii)[143](index=143&type=chunk) [Equity Investment in Mountain Valley Pipeline](index=29&type=section&id=7.6.%20Equity%20Investment%20in%20Mountain%20Valley%20Pipeline) Midstream's equity interest in the MVP project increased, but the project faces delays and cost increases due to regulatory challenges - Midstream's equity interest in the **Mountain Valley Pipeline (MVP) project increased to approximately 1.03%**, with a total estimated cash investment ranging from **$60 million to $62 million**[144](index=144&type=chunk) - The **MVP project is approximately 92% complete** but faces **significant legal and regulatory challenges**, including a stay on Nationwide Permit 12 and pending FERC authorizations, extending the **in-service date to the second half of calendar 2021**[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) - The total projected cost for the MVP project has increased to **$5.8 billion to $6.0 billion (excluding AFUDC)** due to unanticipated delays[148](index=148&type=chunk) - Current earnings from the MVP investment are primarily attributable to **AFUDC** (Allowance for Funds Used During Construction), which will be reduced or cease once the pipeline is in service, with future earnings derived from pipeline utilization capacity charges[150](index=150&type=chunk) - Midstream also holds a **less than 1% investment in the Southgate project**, with an estimated investment of **$2.1 million** and a targeted in-service date of **2022**, also subject to regulatory decisions and processes[151](index=151&type=chunk) [Regulatory and Tax Reform](index=31&type=section&id=7.7.%20Regulatory%20and%20Tax%20Reform) Recent regulatory actions include a rate increase, customer refunds, AFUDC recognition, and accelerated ESAC recovery, alongside tax reform impacts - The **SCC's final rate order in January 2020** granted Roanoke Gas an **annualized non-gas rate increase of $7.25 million**, required **$3.8 million in customer refunds**, and directed a **$317,000 write-down of ESAC assets**[153](index=153&type=chunk)[155](index=155&type=chunk) - The company began **recognizing $330,000 in AFUDC income (retroactive to January 1, 2019)** to capitalize equity and debt financing costs for MVP interconnect stations, as authorized by the SCC[156](index=156&type=chunk) - Roanoke Gas **accelerated the recovery of $525,000 in ESAC assets in fiscal 2020** due to its earnings exceeding the authorized return on equity mid-point[158](index=158&type=chunk) - The **COVID-19 related moratorium on service disconnections**, extended by HB5005 for residential customers, led to an **increased provision for bad debts**, with potential relief from CARES Act funds[157](index=157&type=chunk) - **Tax reform (TCJA) reduced the federal tax rate to 21%**, leading to two regulatory liabilities: **excess deferred taxes (majority refunded over 28 years)** and **excess revenues collected (refunded over 12 months, completed December 2019)**[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk) - The **updated SAVE Plan and Rider, approved in September 2020**, is designed to collect approximately **$2.3 million in annual revenues for fiscal 2021**, an **increase from $1.2 million under prior rates**, and includes new qualifying projects[162](index=162&type=chunk) [Critical Accounting Policies and Estimates](index=34&type=section&id=7.8.%20Critical%20Accounting%20Policies%20and%20Estimates) This section outlines critical accounting policies for regulated operations, revenue recognition, doubtful accounts, and pension/postretirement plans - The company's regulated operations follow **FASB ASC No. 980, Regulated Operations**, which allows for **deferring costs as regulatory assets or liabilities** based on expected recovery from customers[166](index=166&type=chunk) - Revenue recognition is based on **SCC-approved tariff rates**, including **Alternative Revenue Programs (ARPs)** like the **WNA and SAVE Rider**, and accrual for unbilled natural gas delivered to customers[168](index=168&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - The estimation of the **allowance for doubtful accounts has become more subjective** due to the **COVID-19 pandemic** and the **moratorium on disconnections**, leading to **increased bad debt reserves**[173](index=173&type=chunk) Pension and Postretirement Plans Funded Status (September 30, 2020): | Plan | Benefit Obligation ($) | Fair Value of Assets ($) | Funded Status ($) | | :---------- | :--------------------- | :----------------------- | :---------------- | | Pension | $39,998,002 | $37,657,631 | $(2,340,371) | | Postretirement | $17,925,409 | $14,116,253 | $(3,809,156) | | **Total** | **$57,923,411** | **$51,773,884** | **$(6,149,527)** | - The **pension plan was 94% funded as of September 30, 2020**, and the company **rebalanced its pension plan investment allocation from 40% equity/60% fixed income to 30% equity/70% fixed income** to reduce volatility and match liability duration[179](index=179&type=chunk) - The company expects to contribute approximately **$500,000 to its pension plan** and **$400,000 to its postretirement plan in fiscal 2021**[181](index=181&type=chunk) - The company uses **interest rate swaps to hedge variable rate debt**, which qualify as **cash flow hedges**, with changes in fair value reported in other comprehensive income[184](index=184&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable to the company [Item 8. Financial Statements and Supplementary Data](index=38&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements, including the auditor's report, balance sheets, income statements, cash flows, and detailed notes [Report of Independent Registered Public Accounting Firm](index=41&type=section&id=8.1.%20Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Brown, Edwards & Company, LLP issued an unqualified opinion on the consolidated financial statements for fiscal years 2020 and 2019 - **Brown, Edwards & Company, LLP**, the independent registered public accounting firm, issued an **unqualified opinion** on the **consolidated financial statements** for the years ended **September 30, 2020 and 2019**, stating they present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with **GAAP**[190](index=190&type=chunk) [Consolidated Balance Sheets](index=42&type=section&id=8.2.%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, including assets, liabilities, and equity, as of September 30, 2020 and 2019 Consolidated Balance Sheet Highlights (as of September 30): | Metric | 2020 ($) | 2019 ($) | Change ($) | % Change (%) | | :------------------------------------ | :----------- | :----------- | :----------- | :--------- | | Total Assets | $281,679,507 | $258,353,696 | $23,325,811 | 9.0% | | Utility plant, net | $198,445,093 | $182,002,956 | $16,442,137 | 9.0% | | Investment in unconsolidated affiliates | $57,542,805 | $47,375,459 | $10,167,346 | 21.5% | | Total Liabilities | $192,791,530 | $175,256,904 | $17,534,626 | 10.0% | | Total Stockholders' Equity | $88,887,977 | $83,096,392 | $5,791,585 | 7.0% | [Consolidated Statements of Income](index=44&type=section&id=8.3.%20Consolidated%20Statements%20of%20Income) This section details the company's revenues, operating income, equity in earnings, and net income for fiscal years 2020 and 2019 Consolidated Statements of Income Highlights (Years Ended September 30): | Metric | 2020 ($) | 2019 ($) | Change ($) | % Change (%) | | :------------------------------------ | :----------- | :----------- | :----------- | :--------- | | Total Operating Revenues | $63,075,391 | $68,026,525 | $(4,951,134) | (7.3)% | | Operating Income | $12,518,182 | $11,595,464 | $922,718 | 7.9% | | Equity in earnings of unconsolidated affiliate | $4,814,874 | $3,020,348 | $1,794,526 | 59.4% | | Net Income | $10,564,534 | $8,698,412 | $1,866,122 | 21.5% | | Basic Earnings Per Common Share | $1.30 | $1.08 | $0.22 | 20.4% | | Diluted Earnings Per Common Share | $1.30 | $1.08 | $0.22 | 20.4% | [Consolidated Statements of Comprehensive Income](index=45&type=section&id=8.4.%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's net income and other comprehensive loss, resulting in total comprehensive income for fiscal years 2020 and 2019 Consolidated Statements of Comprehensive Income (Years Ended September 30): | Metric | 2020 ($) | 2019 ($) | | :------------------------------------ | :----------- | :----------- | | Net Income | $10,564,534 | $8,698,412 | | Other comprehensive loss, net of tax | $(959,027) | $(1,617,249) | | **Comprehensive Income** | **$9,605,507** | **$7,081,163** | [Consolidated Statements of Stockholders' Equity](index=46&type=section&id=8.5.%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section outlines changes in stockholders' equity, including net income, comprehensive loss, stock options, dividends, and stock issuance Changes in Stockholders' Equity (Years Ended September 30): | Metric | 2020 ($) | 2019 ($) | | :------------------------------------ | :----------- | :----------- | | Balance - Beginning of Year | $83,096,392 | $79,583,112 | | Net income | $10,564,534 | $8,698,412 | | Other comprehensive loss | $(959,027) | $(1,617,249) | | Exercise of stock options | $439,508 | $412,179 | | Cash dividends declared | $(5,697,941) | $(5,314,544) | | Issuance of common stock | $1,510,648 | $1,334,482 | | **Balance - End of Year** | **$88,887,977** | **$83,096,392** | [Consolidated Statements of Cash Flows](index=47&type=section&id=8.6.%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash flows from operating, investing, and financing activities for fiscal years 2020 and 2019 Consolidated Statements of Cash Flows (Years Ended September 30): | Metric | 2020 ($) | 2019 ($) | | :------------------------------------ | :----------- | :----------- | | Net cash provided by operating activities | $12,823,903 | $14,697,704 | | Net cash used in investing activities | $(30,721,011) | $(42,830,005) | | Net cash provided by financing activities | $16,556,826 | $29,516,238 | | **Net increase (decrease) in cash and cash equivalents** | **$(1,340,282)** | **$1,383,937** | | Cash paid for interest | $3,845,382 | $3,328,130 | | Cash paid for income taxes | $1,673,000 | $2,287,000 | [Notes to Consolidated Financial Statements](index=48&type=section&id=8.7.%20Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on accounting policies, revenue, regulatory matters, investments, debt, taxes, and employee benefits [Summary of Significant Accounting Policies](index=48&type=section&id=8.7.1.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the company's key accounting policies, including regulated operations, utility plant, AFUDC, and allowance for doubtful accounts - The company's regulated operations follow **FASB ASC No. 980, Regulated Operations**, which allows for **deferring costs as regulatory assets or liabilities** based on expected recovery from customers[208](index=208&type=chunk) Regulatory Assets and Liabilities (as of September 30): | Category | 2020 ($) | 2019 ($) | | :----------------------- | :----------- | :----------- | | Total regulatory assets | $13,815,561 | $13,712,737 | | Total regulatory liabilities | $31,478,420 | $34,493,072 | - Utility plant in service increased to **$258,342,372 in 2020 from $237,786,964 in 2019**, with the composite weighted-average depreciation rate at **3.30% in fiscal 2020**[213](index=213&type=chunk) - In fiscal 2020, Roanoke Gas capitalized **$81,629 of debt financing costs** and **$248,579 of equity financing costs as AFUDC** related to MVP interconnect infrastructure investments[216](index=216&type=chunk) Allowance for Doubtful Accounts (Years Ended September 30): | Metric | 2020 ($) | 2019 ($) | | :-------------------------- | :----------- | :----------- | | Beginning balance | $110,743 | $103,573 | | Provision for doubtful accounts | $556,112 | $220,039 | | Recoveries of accounts written off | $139,113 | $96,614 | | Accounts written off | $(102,828) | $(309,483) | | **Ending balance** | **$703,140** | **$110,743** | - Unbilled revenue included in accounts receivable was **$1,041,518 as of September 30, 2020**, down from **$1,236,384 in 2019**[224](index=224&type=chunk) - The company had **three interest rate swaps outstanding** at September 30, 2020, associated with its **variable rate debt**, which qualify as **cash flow hedges**[237](index=237&type=chunk) - Other comprehensive loss, net of tax, was **$(959,027) in fiscal 2020**, primarily due to **interest rate swaps**[240](index=240&type=chunk) - The company adopted **ASU 2016-02 (Leases), ASU 2017-12 (Derivatives and Hedging), and ASU 2018-15 (Cloud Computing Implementation Costs) effective October 1, 2019**, none of which had a **material effect** on its financial statements[244](index=244&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk) - **ASU 2020-04 (Reference Rate Reform)** could impact the company's financial position, results of operations, or cash flows due to contracts and hedging relationships referencing LIBOR[248](index=248&type=chunk) [Revenue](index=56&type=section&id=8.7.2.%20Revenue) This section details total operating revenues by category, including natural gas sales and alternative revenue programs Total Operating Revenues by Category (Year Ended September 30, 2020): | Category | Gas utility ($) | Non-utility ($) | Total operating revenues ($) | | :-------------------------- | :-------------- | :-------------- | :--------------------------- | | Natural Gas (Billed and Unbilled): | | | | | Residential | $37,022,219 | $0 | $37,022,219 | | Commercial | $18,387,674 | $0 | $18,387,674 | | Industrial and Transportation | $5,188,069 | $0 | $5,188,069 | | Other | $489,943 | $666,466 | $1,156,409 | | Total contracts with customers | $61,087,905 | $666,466 | $61,754,371 | | Alternative Revenue Programs | $1,321,020 | $0 | $1,321,020 | | **Total operating revenues** | **$62,408,925** | **$666,466** | **$63,075,391** | - Customer receivables, net of bad debt reserve, were **$2,343,492 for trade accounts** and **$1,041,518 for unbilled revenue as of September 30, 2020**[257](index=257&type=chunk) [Regulatory Matters](index=57&type=section&id=8.7.3.%20Regulatory%20Matters) This section covers recent regulatory actions, including rate increases, customer refunds, AFUDC, ESAC amortization, and tax reform impacts - The **SCC's final order in January 2020** granted Roanoke Gas a **$7.25 million annualized non-gas rate increase**, a **9.44% return on equity**, and directed a **$317,000 write-down of ESAC assets**, with the company refunding **$3.8 million to customers in March 2020**[260](index=260&type=chunk)[261](index=261&type=chunk) - Roanoke Gas applied **AFUDC treatment retroactively to January 1, 2019**, to defer financing costs for MVP interconnect stations, as affirmed by the SCC[262](index=262&type=chunk) - The company accelerated amortization of the **$525,000 remaining balance of its ESAC assets in 2020** due to its earnings test results[263](index=263&type=chunk) - The **COVID-19 related moratorium on service disconnections**, extended by HB5005, led to an **increased provision for uncollectible accounts**[264](index=264&type=chunk) - **Tax reform (TCJA)** resulted in a regulatory liability of approximately **$11 million for excess deferred income taxes**, with the majority to be refunded over a **28-year period**[265](index=265&type=chunk) - The **SCC approved an updated SAVE Plan and Rider in September 2020**, authorizing **$2.3 million in annual revenues for fiscal 2021** and including a refund factor for **$73,000 in 2019 over-collections**[268](index=268&type=chunk) [Segment Information](index=59&type=section&id=8.7.4.%20Segment%20Information) The company operates in three reportable segments: Gas Utility, Investment in Affiliates, and Parent and Other, with detailed performance metrics - The company operates in three reportable segments: **Gas Utility**, **Investment in Affiliates (Mountain Valley Pipeline and Southgate projects)**, and **Parent and Other** (unregulated activities and corporate eliminations)[271](index=271&type=chunk) Segment Performance (Year Ended September 30, 2020): | Metric | Gas Utility ($) | Investment in Affiliates ($) | Parent and Other ($) | Consolidated Total ($) | | :----------------------- | :-------------- | :--------------------------- | :------------------- | :--------------------- | | Operating revenues | $62,408,925 | $0 | $666,466 | $63,075,391 | | Operating income (loss) | $12,429,613 | $(220,194) | $308,763 | $12,518,182 | | Equity in earnings | $0 | $4,814,874 | $0 | $4,814,874 | | Income before income taxes | $10,350,946 | $3,233,233 | $286,015 | $13,870,194 | | Total assets | $211,994,364 | $57,660,105 | $12,025,038 | $281,679,507 | [Other Investments](index=60&type=section&id=8.7.5.%20Other%20Investments) Midstream's equity interest in the MVP project increased, facing cost overruns and delays, while also holding a minor investment in Southgate - Midstream's equity interest in the **MVP project increased to approximately 1.03%**, with total estimated cash contributions expected to range from **$60 million to $62 million**[275](index=275&type=chunk) - The **MVP project's projected cost is $5.8 billion to $6.0 billion**, with the **in-service date extended to the second half of calendar 2021** due to regulatory and legal challenges[276](index=276&type=chunk) - Midstream has a **less than 1% investment in the Southgate project**, with an estimated cost of **$2.1 million** and a targeted in-service date of **2022**[277](index=277&type=chunk) Investment in Unconsolidated Affiliates (as of September 30): | Project | 2020 ($) | 2019 ($) | | :---------- | :----------- | :----------- | | MVP | $57,183,063 | $47,055,426 | | Southgate | $359,742 | $320,033 | | **Total** | **$57,542,805** | **$47,375,459** | - Equity in earnings of unconsolidated affiliate was **$4,814,874 in 2020**, up from **$3,020,348 in 2019**[280](index=280&type=chunk) [Line-of-Credit](index=61&type=section&id=8.7.6.%20Line-of-Credit) Roanoke Gas renewed its unsecured line-of-credit with a $28 million limit, and the company remains compliant with all debt covenants - Roanoke Gas **renewed its unsecured line-of-credit agreement** for a **two-year term expiring March 31, 2022**, with a maximum borrowing limit of **$28,000,000**[281](index=281&type=chunk) Line-of-Credit Summary (as of September 30): | Metric | 2020 ($) | 2019 ($) | | :------------------------------------ | :----------- | :----------- | | Available line-of-credit at year-end | $19,000,000 | $22,000,000 | | Outstanding balance at year-end | $9,143,606 | $8,172,473 | | Average rate of interest during year on outstanding balances | 2.16 % | 3.40 % | | Interest rate at year-end | 1.15 % | 3.02 % | - The company was in **compliance with all debt covenants**, including maintaining an **interest coverage ratio of not less than 1.5 to 1** and a **long-term debt to long-term capitalization ratio of less than 65%**[282](index=282&type=chunk) [Long-Term Debt](index=62&type=section&id=8.7.7.%20Long-Term%20Debt) Midstream increased its credit facility to $41 million, Roanoke Gas issued $10 million in notes, and the company remains compliant with debt covenants - Midstream amended its Credit Agreement, **increasing total borrowing capacity to $41,000,000** and **extending the maturity date to December 29, 2022**, to finance its MVP investment[283](index=283&type=chunk) - Roanoke Gas entered into **$10,000,000 in unsecured notes** with a **10-year term** at a **fixed interest rate of 3.60%** to fund its capital budget[284](index=284&type=chunk) Total Notes Payable (as of September 30): | Metric | 2020 ($) | 2019 ($) | | :---------------- | :----------- | :----------- | | Total notes payable | $114,975,200 | $95,512,200 | | Line-of-credit | $9,143,606 | $8,172,473 | | **Total long-term debt** | **$124,118,806** | **$103,684,673** | Aggregate Annual Maturities of Long-Term Debt (after September 30, 2020): | Year Ending September 30 | Maturities ($) | | :----------------------- | :------------- | | 2021 | $0 | | 2022 | $16,268,606 | | 2023 | $25,975,200 | | 2024 | $9,375,000 | | 2025 | $0 | | Thereafter | $72,500,000 | | **Total** | **$124,118,806** | - The company was in **compliance with all debt covenants as of September 30, 2020 and 2019**[289](index=289&type=chunk) [Income Taxes](index=64&type=section&id=8.7.8.%20Income%20Taxes) This section details income tax expense, deferred tax liabilities, and the impact of tax reform on the company's tax position - The company's statutory federal income tax rate was **21% in fiscal 2020 and 2019**[291](index=291&type=chunk) - The revaluation of deferred tax assets and liabilities due to the TCJA resulted in a **reduction of approximately $9 million in net deferred tax liability**, with approximately **$11.8 million reclassified to regulatory liability**[292](index=292&type=chunk) Total Income Tax Expense (Years Ended September 30): | Metric | 2020 ($) | 2019 ($) | | :-------------------- | :----------- | :----------- | | Total current income taxes | $2,183,357 | $1,966,703 | | Total deferred income taxes | $1,122,303 | $684,028 | | **Total income tax expense** | **$3,305,660** | **$2,650,731** | | Effective tax rate | 23.8 % | 23.4 % | Net Deferred Tax Liability (as of September 30): | Metric | 2020 ($) | 2019 ($) | | :-------------------- | :----------- | :----------- | | Total gross deferred tax assets | $6,054,976 | $5,869,205 | | Total gross deferred tax liabilities | $20,028,738 | $18,847,728 | | **Net deferred tax liability** | **$13,973,762** | **$12,978,523** | [Employee Benefit Plans](index=65&type=section&id=8.7.9.%20Employee%20Benefit%20Plans) The company sponsors pension and postretirement plans, with details on funded status, actuarial assumptions, investment allocation, and contributions - The company sponsors a **noncontributory pension plan (soft-frozen for new hires since January 2017)** and a **postretirement medical and life insurance plan (for employees hired prior to January 1, 2000)**[296](index=296&type=chunk)[297](index=297&type=chunk) Funded Status of Benefit Plans (as of September 30, 2020): | Plan | Benefit Obligation ($) | Fair Value of Assets ($) | Funded Status ($) | | :---------------- | :----------- | :----------- | :----------- | | Pension Plan | $39,998,002 | $37,657,631 | $(2,340,371) | | Postretirement Plan | $17,925,409 | $14,116,253 | $(3,809,156) | | **Total** | **$57,923,411** | **$51,773,884** | **$(6,149,527)** | - The **pension plan was 94% funded as of September 30, 2020**[179](index=179&type=chunk) Actuarial Assumptions - Discount Rate (as of September 30): | Plan | 2020 (%) | 2019 (%) | | :---------------- | :------- | :------- | | Pension Plan | 2.47 % | 3.03 % | | Postretirement Plan | 2.44 % | 3.00 % | Expected Long-Term Rate of Return on Plan Assets (for benefit costs): | Plan | 2020 (%) | 2019 (%) | | :---------------- | :------- | :------- | | Pension Plan | 5.50 % | 5.50 % | | Postretirement Plan | 4.26 % | 4.30 % | - The company revised its targeted pension plan investment allocation in 2020 from **40% equity/60% fixed income to 30% equity/70% fixed income** to reduce investment risk and volatility[304](index=304&type=chunk) - The company expects to contribute **$500,000 to its pension plan** and **$400,000 to its postretirement plan in fiscal 2021**[307](index=307&type=chunk) 401(k) Plan Contributions (Years Ended September 30): | Contribution Type | 2020 ($) | 2019 ($) | | :-------------------- | :----------- | :----------- | | Matching contribution | $364,773 | $348,369 | | Discretionary contribution | $18,313 | $21,829 | [Common Stock Options](index=71&type=section&id=8.7.10.%20Common%20Stock%20Options) This section details common stock option activity, including shares available for grants, outstanding options, and stock option expense - As of September 30, 2020, there were **23,000 shares available for future grants** under the Key Employee Stock Option Plan (KESOP)[308](index=308&type=chunk) Stock Option Activity (as of September 30, 2020): | Metric | Number of Shares | Weighted Average Exercise Price ($) | | :------------------------------------ | :--------------- | :-------------------------------- | | Options outstanding, Sep 30, 2019 | 68,492 | $14.91 | | Options granted | 13,000 | $27.87 | | Options exercised | (29,992) | $14.65 | | **Options outstanding, Sep 30, 2020** | **51,500** | **$18.34** | | Vested and exercisable, Sep 30, 2020 | 51,500 | $18.34 | - Stock option expense was **$81,380 in fiscal 2020**[313](index=313&type=chunk) [Other Stock Plans](index=72&type=section&id=8.7.11.%20Other%20Stock%20Plans) This section outlines activity under the Dividend Reinvestment and Stock Purchase Plan, Restricted Stock Plan for Outside Directors, and Restricted Stock Plan for Officers - Under the **Dividend Reinvestment and Stock Purchase Plan (DRIP)**, the company issued **28,191 shares in 2020 and 26,716 shares in 2019**, with **362,322 shares available for issuance** as of September 30, 2020[314](index=314&type=chunk) - Under the **Restricted Stock Plan for Outside Directors (RSPD)**, **9,193 shares were granted in 2020**, with a fair market value of **$241,617 included as compensation**, and **52,029 shares were available** as of September 30, 2020[317](index=317&type=chunk)[318](index=318&type=chunk) - Under the **RGC Resources, Inc. Restricted Stock Plan for Officers (RSPO)**, **14,951 shares were granted in 2020**, with a fair market value of **$450,677 included as compensation**, and **413,718 shares were available** as of September 30, 2020[320](index=320&type=chunk) [Commitments and Contingencies](index=74&type=section&id=8.7.12.%20Commitments%20and%20Contingencies) This section details natural gas volumetric obligations, pipeline capacity commitments, franchise agreements, and potential environmental costs Natural Gas Volumetric Obligations (as of September 30, 2020): | Year | In DTHs | | :--------- | :-------- | | 2020-2021 | 2,090,972 | | 2021-2022 | 295,866 | | **Total** | **2,386,838** | - The company has a **fixed price agreement to purchase approximately 1.3 million DTH from October 2020 to March 2021** at prices ranging from **$2.17 to $2.62 per DTH**[323](index=323&type=chunk) Pipeline and Storage Capacity Commitments (as of September 30, 2020): | Year | Amount ($) | | :--------- | :----------- | | 2020-2021 | $11,048,798 | | 2021-2022 | $10,284,092 | | 2022-2023 | $7,403,271 | | 2023-2024 | $5,743,826 | | 2024-2025 | $3,167,937 | | Thereafter | $888,426 | | **Total** | **$38,536,350** | - Franchise agreements with the City of Roanoke, City of Salem, and Town of Vinton were renewed in 2016 for **20-year terms expiring in December 2035**, with **$2,294,588 in future obligations**[325](index=325&type=chunk) - The company is **not a party to any legal proceedings expected to have a materially adverse impact** on its financial position, results of operations, or cash flows[327](index=327&type=chunk) - There is a **potential for environmental costs related to coal tar contaminants** at a former manufactured gas plant site, for which the company would pursue recovery through insurance and regulatory approval[328](index=328&type=chunk) [Fair Value Measurements](index=75&type=section&id=8.7.13.%20Fair%20Value%20Measurements) This section provides fair value measurements for financial liabilities, including natural gas purchases and interest rate swaps, and notes payable Fair Value Liabilities (as of September 30, 2020): | Liability | Fair Value ($) | Level | | :------------------ | :------------- | :------ | | Natural gas purchases | $470,755 | Level 2 | | Interest rate swaps | $2,223,556 | Level 2 | | **Total** | **$2,694,311** | | Fair Value of Notes Payable (as of September 30, 2020): | Metric | Carrying Amount ($) | Fair Value ($) | Level | | :----------- | :------------------ | :------------- | :------ | | Notes payable | $114,975,200 | $124,740,970 | Level 3 | [Quarterly Financial Information (Unaudited)](index=76&type=section&id=8.7.14.%20Quarterly%20Financial%20Information%20%28Unaudited%29) This section provides unaudited quarterly operating revenues, net income, and basic earnings per share for fiscal year 2020 Quarterly Operating Revenues (2020): | Quarter | Amount ($) | | :------ | :----------- | | First | $19,785,453 | | Second | $22,437,731 | | Third | $11,071,918 | | Fourth | $9,780,289 | Quarterly Net Income (2020): | Quarter | Amount ($) | | :------ | :----------- | | First | $4,006,936 | | Second | $5,680,316 | | Third | $1,206,578 | | Fourth | $(329,296) | Quarterly Basic Earnings Per Share (2020): | Quarter | EPS ($) | | :------ | :------ | | First | $0.50 | | Second | $0.70 | | Third | $0.15 | | Fourth | $(0.04) | [Subsequent Events](index=76&type=section&id=8.7.15.%20Subsequent%20Events) The company evaluated subsequent events through the financial statement issuance date and reported no other material items - The company evaluated subsequent events through the financial statement issuance date and reported **no other material items not already disclosed**[335](index=335&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures](index=77&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) The company reports no changes in or disagreements with accountants on accounting and financial disclosures [Item 9A. Controls and Procedures](index=77&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of September 30, 2020 - The company's **disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of September 30, 2020**[338](index=338&type=chunk) - Management concluded that the company's **internal control over financial reporting was effective as of September 30, 2020**, based on the **COSO framework**[342](index=342&type=chunk) - There were **no changes in internal controls over financial reporting during the fourth quarter** of the fiscal year that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[339](index=339&type=chunk) [Item 9B. Other Information](index=77&type=section&id=Item%209B.%20Other%20Information) The company reports no other information to disclose under this item [PART III](index=79&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=79&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, corporate governance, and ethics is incorporated by reference from the 2021 Proxy Statement - **Abney S. Boxley, III and Jacqueline L. Archer are identified as audit committee financial experts**[345](index=345&type=chunk) - The company has adopted a **Code of Ethics applicable to all officers, directors, and employees**, and Board Committee charters, all **available on its website**[348](index=348&type=chunk) [Item 11. Executive Compensation](index=79&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the 2021 Annual Meeting of Shareholders Proxy Statement [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=79&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and equity compensation plans is incorporated by reference from the 2021 Proxy Statement [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=79&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on director independence and related party transactions is incorporated by reference from the 2021 Annual Meeting of Shareholders Proxy Statement [Item 14. Principal Accounting Fees and Services](index=79&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services is incorporated by reference from the 2021 Annual Meeting of Shareholders Proxy Statement [PART IV](index=80&type=section&id=PART%20IV) [Item 15. Exhibits and Financial Statement Schedules](index=80&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits and financial statement schedules filed as part of the report, including corporate documents and agreements [Item 16. Form 10-K Summary](index=86&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company [Signatures](index=87&type=section&id=Signatures) The Annual Report on Form 10-K was signed by the President, CEO, Principal Financial Officer, and Board members on December 3, 2020 - The **Annual Report on Form 10-K** was signed on behalf of RGC Resources, Inc. by its **President and Chief Executive Officer**, **Principal Financial Officer**, and members of the **Board of Directors on December 3, 2020**[367](index=367&type=chunk)[369](index=369&type=chunk)

RGC Resources, Inc. (NASDAQ:RGCO) Q3 2020 Earnings Conference Call August 7, 2020 9:00 AM ET Company Participants Paul Nester - President, CEO Randy Burton - CFO Conference Call Participants Michael Gaugler - Janney Montgomery Scott Paul Nester Good morning. I'm Paul Nester, President and CEO of RGC Resources Inc. Welcome and thank you for joining us as we discuss RGC Resources Third Quarter 2020 results. First, I would like to go over a few administrative items. We have muted all lines and asked that all p ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Transition Period From to Commission File Number 000-26591 RGC Resources, Inc. (Exact name of Registrant as Specified in its Charter) Virginia 54-1909697 (State or Other Jurisdiction of Inco ...

Investor Presentation May 2020 Forward-Looking Statements The statements in this presentation by RGC Resources, Inc. (the "Company") that are not historical facts constitute "forwardlooking statements" made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These statements include the Company's expectations regarding earnings per share, EBITDA, future expansion opportunities, natural gas reserves and potential discoverable nat ...

RGC Resources, Inc. (NASDAQ:RGCO) Q2 2020 Earnings Conference Call May 8, 2020 9:00 AM ET Company Participants Paul Nester - President & Chief Executive Officer Randy Burton - Chief Financial Officer Conference Call Participants Paul Nester Good morning. I'm Paul Nester, President and CEO of RGC Resources Inc. Welcome and thank you for joining us as we discuss RGC Resources Second Quarter 2020 results. First, I would like to go over a few administrative items. We have muted all lines and asked that all part ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended March 31, 2020 Commission File Number 000-26591 RGC Resources, Inc. (Exact name of Registrant as Specified in its Charter) (State or Other Jurisdiction of Incorporation or Organization) 519 Kimball Ave., N.E., Roanoke, VA 24016 (Address of Principal Executive Offices) (Zip Code) Indicate by check mark whether the ...